SEC refuses to suspend mark-to-market rules

Associated Press

Published
4:00 am PST, Wednesday, December 31, 2008

SEC rejects bid to suspend mark-to-market rules

Federal regulators have rejected a banking industry push to suspend accounting rules that force banks to value assets on their balance sheets at current market prices even if they plan to hold them for years.

The Securities and Exchange Commission issued a report to Congress on Tuesday that recommends maintaining so-called mark-to-market rules. Proponents of the rules argued that suspending them would weaken transparency in companies' financial statements, hurting investors and the capital markets. Critics said the regulations mandate unnecessary write-downs that don't reflect the true value of soured, mortgage-linked assets and the prices they may fetch in the future.

The SEC's study of the practice, also known as fair value accounting, was mandated by Congress as part of the $700 billion financial bailout package passed in October. The law also affirmed the SEC's authority to suspend mark-to-market accounting - a change won by the industry's Republican allies in Congress.

The 259-page report also concluded that accounting rules "did not appear to play a meaningful role" in the 25 bank failures that have occurred this year or the tumult at collapsed investment banks.

"Rather than a crisis precipitated by fair value accounting, the crisis was a 'run on the bank' at certain institutions," such as Bear Stearns Cos., Lehman Brothers Holdings and Merrill Lynch & Co. Inc., according to the SEC report.

Fed to buy $500 billion in mortgage securities

The Federal Reserve said Tuesday that it will begin purchasing up to $500 billion in mortgage-backed securities early next month in an effort to bolster the long-suffering housing market.

The Fed first announced that it would purchase the securities, which consist of pools of mortgages that are bundled together and sold to investors, in November but did not say when the buying would begin. The central bank will buy securities guaranteed by the government-controlled home loan giants Fannie Mae, Freddie Mac and Ginnie Mae, a federal agency.

Mortgage rates have fallen to historic lows since the Fed announced the program, and that has spurred a surge in home refinancings.

The mortgage-related asset purchases, along with a separate Fed program announced last month to buy securities backed by consumer debt, have the same aim: to boost demand for those assets. In doing so, the government hopes to lower the rates being charged for consumer loans. That would make loans for everything from homes to cars more available.

The Fed said the risk of losses from the purchases is minimal because they are backed by the government-sponsored agencies.

Actors among victims in Madoff scheme

Call it six degrees of Bernard Madoff: Actors Kevin Bacon and Kyra Sedgwick, who are married, are among the victims of the alleged $50 billion Ponzi scheme run by the disgraced money manager.

Bacon's publicist, Allen Eichhorn, confirmed Tuesday that the couple had investments with Madoff. But he wouldn't say how much money they lost.

In other business, a U.S. Bankruptcy Court judge on Tuesday approved the transfer of $28.1 million to cover expenses tied to the liquidation of Madoff's firm.

Irving Picard, the trustee presiding over the liquidation, said he needed the money to cover employee salaries and other costs.

Oil prices tumble on grim economic news

Oil prices fell Tuesday as consumer confidence in the U.S. hit an all-time low in December and home prices dropped sharply, with few signs that the real estate market has hit bottom.

Crude prices had risen for the first time in a week Monday with the armed conflict between Israel and Palestinian militants entering a third day. Violence in the oil-rich Middle East, however, was drowned out by more bad economic news in the United States.